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Real rigidities, productivity improvements and investment dynamics

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  • Giuli, Francesco
  • Tancioni, Massimiliano

Abstract

The theoretical literature on business cycles predicts a positive investment response to productivity improvements, a prediction we question from theoretical and empirical perspectives. We show that a short-term negative response of investment to a positive technology shock is consistent with a reasonably parameterized new Keynesian dynamic stochastic general equilibrium (DSGE) model in which firm-specific capital introduces an additional real rigidity, and monetary policy is not fully accommodative. Employing Bayesian techniques, we provide evidence that permanent productivity improvements have short-term, contractionary effects on investment. Although this result can be obtained from both firm-specific and rental capital models, only in the case of the former is the average price duration in line with the microeconometric evidence.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 1 ()
Pages: 100-118

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:1:p:100-118

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Firm-specific capital; NK-DSGE model; Technology shocks; Investment dynamics; Bayesian inference;

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References

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Cited by:
  1. Francesco Giuli & Massimiliano Tancioni, 2012. "Prince-setting, monetary policy and the contractionary effects of productivity improvements," Departmental Working Papers of Economics - University 'Roma Tre' 0161, Department of Economics - University Roma Tre.
  2. Elton Beqiraj & Massimiliano Tancioni, . "Evaluating Labor Market Targeted Fiscal Policies in High Unemployment EZ Countries," Working Papers 165, University of Rome La Sapienza, Department of Public Economics.

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